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MEE Subjects > Secured Transactions > Flashcards

Secured Transactions Flashcards

1
Q

What is a secured transaction?

A

A transaction intended to create a security interest in personal property or fixtures

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2
Q

Debtor

A

The person who owes payment/performance of the obligation secured

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3
Q

Secured party

A

The lender/creditor/seller- the person in whose favor there is a security interest

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4
Q

Security agreement

A

An agreement between the debtor and secured party that creates a security interest (just a contract)

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5
Q

Security interest

A

An interest in personal property or fixtures that secures payment or performance of an obligation

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6
Q

Collateral

A

Property subject to a security interest

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7
Q

Purchase Money Security Interest (PMSI)

A

A special type of security interest in goods that arises in one of two ways

  • The secured party sells the goods to the debtor on credit AND retains a security interest in the goods sold OR
  • The creditor loans the funds to the debtor to enable to debtor to buy specific collateral, those funds are used by the debtor to acquire the specific collateral, and the creditor takes a security interest in that collateral. The PMSI secures whatever portion of the purchase price still has to be paid
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8
Q

Can security agreements contain an after-acquired property clause?

A

Yes

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9
Q

Can a security agreement include a future advance clause?

A

Yes

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10
Q

Attachment definition

A

The steps legally required to give the secured party a security interest in the collateral that is effective as against the debtor

A creditor is not secured until attachment

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11
Q

Perfection definition

A

The steps legally required to give the secured party an interest in the collateral that is effective against the world (determines priority of interests)

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12
Q

Financing statement

A

The document generally used to provide public notice of the security interest, and so to perfect the security interest

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13
Q

What are the four types of tangible collateral?

A
  • Consumer goods
  • Equipment
  • Farm products
  • Inventory
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14
Q

Consumer goods definition

A

Goods used or bought primarily for personal, family, or household purposes

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15
Q

Equipment definition

A

Goods that are used or bought for a business

Note- it is also the default category for goods that don’t fit into any of the other categories

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16
Q

Farm products definition

A

Crops or livestock or supplies used or produced in farming operations or products of crops or livestock in their unmanufactured state if they are in possession of a debtor engaged in farming operations

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17
Q

Inventory defintion

A

Goods held for sale or lease, goods that are to be furnished under service contracts, and materials used or consumed in a business in a short period of time

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18
Q

Whose use of the collateral determines what category the good is in?

A

The debtor’s use of the collateral

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19
Q

What are the categories of intangible or semi-intangible collateral?

A
  • Instruments
  • Documents
  • Chattel paper
  • Investment property
  • Accounts
  • Deposit accounts
  • Commercial tort claims
  • General intangibles
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20
Q

Instruments definition

A

Pieces of paper representing the right to be paid money

Ex: promissory notes, checks, and certificates of deposit

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21
Q

Documents definition

A

A document that represents the right to receive goods

Ex: Bill of lading, a warehouse receipt

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22
Q

Chattel paper definition

A

A record or records which evidence both (1) monetary obligation AND (2) a security interest in or lease of specific goods

A record is information that is stored in either a tangible medium or an intangible medium

Ex: Promissory note, security agreement

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23
Q

Investment property definition

A

Items such as stocks, bonds, mutual funds, and brokerage accounts containing such items

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24
Q

Accounts definition

A

Includes a right to payment

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25
Q

Deposit accounts

A

An account maintained with a bank

Note- Article 9 only applies to security interests in nonconsumer deposit accounts

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26
Q

Commercial tort claim definition

A

A tort claim where (1) the claimant is an organization or (2) the claimant is an individual, the claim arose out of the claimant’s business or profession, and the claim does not include damages for personal injury or the death of an individual

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27
Q

General intangibles definition

A

Any personal property not coming within the scope of the other definitions, such as patent and trademark rights, copyrights, and goodwill

This is the default category for intangibles

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28
Q

What is required for attachment?

A
  • The parties must agree to create the security interest (evidenced by (1) the creditor taking possession of the collateral, (2) an authenticated security agreement, or (3) the creditor taking control of non-consumer deposit accounts, electronic chattel paper, and investment property) AND
  • Value must be given by the secured party AND
  • The debtor must have rights in the collateral
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29
Q

When your security agreement is in writing, what is required?

A
  • Writing must show an intent to create a security interest
  • The agreement must be authenticated (usually just means signed)
  • The agreement must contain a description of the collateral that could reasonably identify it
30
Q

If there is not an explicit after-acquired property clause in the security agreement, what interests are covered?

A

The secured party’s interest only reaches collateral that the debtor had rights in at the time the debtor signed the security agreement

Exception- if the collateral is of a type that is rapidly depleted and replenished (ie inventory or accounts), the security interest attaches without an explicit after-acquired property clause

31
Q

Does a security interest attach to proceeds of the collateral?

A

Yes- the security interest automatically attaches to identifiable proceeds of the collateral

32
Q

Lowest Intermediate Balance Rule

A

In the case of co-mingled cash proceeds, you look at the bank account starting at the time the proceeds are deposited and ending at the time you are applying the rule. The lowest balance during that time period is the secured party’s identifiable proceeds (but the amount cannot exceed the value of the cash proceeds originally deposited)

33
Q

What are the methods of perfecting

A
  • Filing
  • Taking possession of the collateral
  • Control
  • Automatic perfection
  • Temporary perfection
34
Q

To be perfected you must

A

Attach AND do one of the methods of perfecting

35
Q

What is the rule for perfection of a PMSI in consumer goods?

A

The security interest is automatically perfected upon attachment

Exception- if the good is a car or a truck

36
Q

What is the only way to perfect security interests in non-consumer deposit accounts?

A

Control

37
Q

What are the methods of obtaining control?

A
  • The bank in which a non-consumer deposit account is maintained automatically has control over the deposit
  • Putting the deposit account in the secured party’s name
  • Agreeing in an authenticated record with the debtor and the bank in which the deposit account is maintained that the bank will comply with the secured party’s orders regarding the deposit amount without requiring the debtor’s consent
38
Q

What is the only way to perfect security interests in motor vehicles?

A

Notation on the certificate of title issued by the state

Exception- security interests created by dealers in vehicles held in inventory for sale or lease are perfected byu a filing a financing statement under the ordinary Code rules

39
Q

What are the steps to perfect by filing?

A

Obtain a financing statement that contains

  • The debtor’s name and mailing address
  • The secured party’s name and mailing address
  • A description of the collateral covered by the financing statement
40
Q

What happens if the debtor’s name has an error on the financing statement?

A
  • Minor errors in the debtor’s name won’t invalidate a financing statement
  • Seriously misleading errors will invalidate a financing statement
41
Q

What happens to the financing statement if the debtor changes their name?

A

The financing statement is effective only against collateral acquired by the debtor before the name became insufficient and within 4 months after

42
Q

Can a financing statement contain a super generic description of the collateral?

A

Yes

43
Q

Does the financing statement need to mention after-acquired property to perfect a security interest in such property?

A

No

44
Q

What must happen for a financing statement to be effective?

A

The debtor must authorize its filing via a signed writing either before or after it is filed

45
Q

What law governs perfection?

A

Generally, the law of the state where the debtor is located

46
Q

How long is a financing statement valid?

A

5 years

47
Q

Can you extend the time a financing statement is valid?

A

Yes- a continuation statement may be filed for an additional 5 years

48
Q

When can you file a continuation statement?

A

Only within 6 months of the lapse of the filed statement

49
Q

What is the rule for perfection for proceeds of a secured interest?

A
  • If the secured party has a perfected security interest in collateral, the secured party automatically has a perfected security interest in any proceeds of the collateral for 20 days after receipt of the proceeds
  • For the security interest to continue beyond the 20 days
    • the proceeds must be identifiable cash proceeds OR
    • If you have a security interest in proceeds they stay perfected if the security interest in the original inventory was perfected OR
    • The security interest in the proceeds is perfected within the 20 day period
50
Q

Same Office Rule

A

If you have a security interest in proceeds they stay perfected if the security interest in the original inventory was perfected

51
Q

When there are two secured parties, which gets priority?

A

The first to file or the first to perfect (whichever is earlier)

52
Q

When there are two unperfected security interests, which gets priority?

A

The first to attach

53
Q

When a perfected and unperfected security interest compete, which prevails?

A

The perfected security interest

54
Q

When do PMSIs enjoy superpriority?

A

PMSIs are superior to prior perfected security interests in the same collateral if

  • The PMSI is in goods other than inventory and livestock
55
Q

What happens to security interests perfected by control?

A

They have priority over security interests perfected by other methods

56
Q

What happens if there are conflicting security interests in deposit accounts?

A

The security interest in a deposit account that is perfected by control has priority over a conflicting security interest that is perfected by another method

57
Q

What happens to the security interest on an item when the buyer/lessee buys/leases something with a security interest on it?

A

Generally, the security interest stays on the item

58
Q

Does a buyer in the ordinary course of business take free of a non-possessory security interest created by the buyer’s seller?

A

Yes

59
Q

Define buyer in the ordinary course

A

One who

  • buys goods in good faith
  • without knowledge that the sale violates the rights of another person
  • in the ordinary course of business from a seller in the business of selling goods of the kind purchased
60
Q

In a consumer-to-consumer sale of goods, when does the buyer take free of a perfected security interest?

A
  • The buyer buys without knowledge of the security interest
  • for value
  • with the buyer’s own personal, family, or household purposes
  • before a financing statement covering the goods has been filed
61
Q

When is a secured party entitled to self-help?

A

When they can take possession of the collateral without a breach of the peace

62
Q

When is the peace breached?

A

Any conduct that has the potential to lead to violence is a breach of the peace

Physical presence of the debtor + verbal objection by the debtor is sufficient

63
Q

Is breaking and entering a breach of the peace?

A

Yes for residence, less likely yes for commercial location

64
Q

Can a secured party make equipment unusuable?

A

Yes if they can do so without a breach of the peace

65
Q

Every aspect of a sale on default must be

A

Commercially reasonable

66
Q

What is the secured party’s liability for failure to follow the Code’s rules?

A

The secured party is liable for the actual damages caused by failure to follow ANY of the Code’s rules on default

67
Q

What is the presumption if the secured party fails to follow the Code’s rules on default?

A

There is a rebuttable presumption that the sale proceeds equal the amount of the debt

68
Q

How do you perfect a security interest in fixtures?

A

Make a fixture filing in the office where a mortgage on the real estate would be filed

69
Q

When is a fixture filing not necessary?

A

Readily removable

  • Office or factor machines
  • Equipment that is not primarily used or leased for use in the operation of the real estate
  • Replacements of domestic appliances which are consumer goods
70
Q

Accession definition

A

Accessions are goods that are physically united with other goods in such a manner that the identity of the original good is not lost

71
Q

Which takes priority, a security interest in the whole or a security interest in the accession?

A

A security interest in the whole

72
Q

Which prevails between a properly perfected PMSI interest and a properly perfected other form of interest?

A

The PMSI wins

MEE Subjects (8 decks)

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